Today I received an email from a Producer at Channel NewsAsia (CNA) for the programme "Cents & Sensibilities" - a programme about investing. The producer asked me whether I was willing to be interviewed for the purpose of determining how collectors can make gains or profits from watch collecting - i.e. specifically "Capital Appreciation".
I get such requests from time to time, either for video recording or for magazines. I thought that since this is such an often requested topic, I would share here my response:
Thank you for your kind offer but I generally do not do TV interviews. In any case, I am not one who believes that there is profit to be gained by watch collecting.
It’s very much like art collection. You either buy what you want or buy what others want. Sometimes one can get lucky and able to get both but still run the risk of not ever making even the investment cost because there is no secondary market. Capital appreciation only occurs on the sale of the acquisition. The gain is strongly affected by supply and demand and market reputation of the watch.
So ultimately it is the secondary market that dictates whether there is any gains to be made. Furthermore for every single piece that even breaks even in the secondary market, there are many thousands of watches sold with little or no residual value. Therefore it’s a myth that all luxury watches are good investments - perpetuated by who have invested heavily to talk it up.
If there were any such thing as smart money in watches – it is to buy earlier than everyone else those pieces that everyone else want. This is the game that speculators play. But they run into all kinds of risks - as speculators do.
Ultimately, it is as simple as understanding the herd instincts and being able to get what the herd wants – if you want to buy for sole purpose of making capital gains. Unfortunately, that is still not enough because you still need to have the financial strength to be able to find retailers who will be willing to sell you their prized pieces ahead of all the other valued clients.
Again let me be clear, there are a handful of pieces that continue to appreciate in value. They occur for reasons like rarity, fanatic following of the model or even brand, mythical reputation etc. The congruence of all these factors are rare and as such it’s like buying a Gull Wing Mercedes. It’s a renowned classic and there is a dwindling supply to market. Every world class car collector wants one and will pay really good money for it. So as in cars, it is the same in watches. There are only a small handful of Gull Wing Mercedes in the market for trade.
Postscript - A clarification, the intent of this commentary was to convey the truth about the myth of the potential profits that collectors can make in buying watches. However, with proper and careful research and balancing both the buyer's wants and market's wants (thereby still enjoying the watch) it may be possible to retain some proportion of the invested value - this is very different from the expectation of profit. However there are no guarantees - even with careful research on rarity, secondary market pricing etc. No one can predict market behaviour and fashion changes.
The whole aspect of the hobby of watch collecting may seem synonymous to watch investing but the compelling motivation for "collecting" is inherently different from "investing". Each individual that enters the market for luxury watches need to understand where he or she stands. The mistake for the uninitiated is to believe that buying luxury watches is an investment - clearly such expense is generally not investing.
I may at a later date post a follow up blog post on - "How do speculators make profits from luxury watches?" - which is a related question but the premise is completely different from watch collecting.